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Liberalizing foreign investments by pension funds: Positive and normative aspects


  • Reisen, Helmut


The paper evaluates the economics of foreign investment regulation for pension funds, with a focus on developing countries, where fully-funded pension systems are being started de novo. The analysis produces three observations. First, the benefits of global portfolio diversification apply particularly to developing-country pension assets because the volatility of asset returns is high while the risk tolerance of pensioners is low. Second, restrictions of foreign investment by domestic pension funds can hardly be justified on grounds of financial-development arguments: cross-country evidence which little support for the claim that the accumulation of pension assets would provide strong externalities for financial development. Moreover, the home bias generally observed in pension fund investment should translate into sufficient potential demand for domestic financial assets so as to deepen markets and develop the institutional infrastructure. Third, a case for initial localisation ... Ce document évalue l’économie de la réglementation des investissements à l’étranger des caisses de retraite, notamment pour les pays en développement (PED) où les systèmes de retraite par capitalisation sont récents. L’analyse conduit à trois observations. Premièrement, elle montre que les produits d’épargne retraite des PED peuvent tout particulièrement bénéficier d’une diversification des portefeuilles au niveau mondial ; en effet, les rendements des actifs sont très volatils alors que les retraités sont très vulnérables. Deuxièmement, l’argument du développement financier peut difficilement justifier les limitations à l’investissement étranger par les fonds de pension nationaux : cette étude internationale ne confirme pas vraiment l’idée selon laquelle l’accumulation de produits d’épargne retraite conduirait à des retombées positives importantes pour le développement financier. De plus, le biais national généralement observé dans les investissements de caisses de retraite ...
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Suggested Citation

  • Reisen, Helmut, 1997. "Liberalizing foreign investments by pension funds: Positive and normative aspects," World Development, Elsevier, vol. 25(7), pages 1173-1182, July.
  • Handle: RePEc:eee:wdevel:v:25:y:1997:i:7:p:1173-1182

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    References listed on IDEAS

    1. Aizenman, Joshua & Guidotti, Pablo E., 1994. "Capital controls, collection costs and domestic public debt," Journal of International Money and Finance, Elsevier, vol. 13(1), pages 41-54, February.
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    6. Michael P. Dooley, 1995. "A Survey of Academic Literature on Controls over International Capital Transactions," NBER Working Papers 5352, National Bureau of Economic Research, Inc.
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    10. Helmut Reisen & John Williamson, 1994. "Pension Funds, Capital Controls and Macroeconomic Stability," OECD Development Centre Working Papers 98, OECD Publishing.
    11. Liliana Rojas-Suárez & Steven R. Weisbrod, 1996. "Building Stability in Latin American Financial Markets," Research Department Publications 4028, Inter-American Development Bank, Research Department.
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    Cited by:

    1. Wade D. Pfau, 2008. "Emerging Market Pension Funds and International Diversification," GRIPS Discussion Papers 08-10, National Graduate Institute for Policy Studies.
    2. Grech, Aaron George, 1999. "Funded pension schemes: Economic effects and policy implications," MPRA Paper 33615, University Library of Munich, Germany.
    3. Eduardo Siandra, 1999. "La inversión extranjera de los fondos de pensiones y el desarrollo del mercado de capitales doméstico," Documentos de Trabajo (working papers) 0599, Department of Economics - dECON.
    4. Francesco Macheda, 2018. "The illusion of patient capital: evidence from pension investment policy in the Netherlands," Working Papers 0029, ASTRIL - Associazione Studi e Ricerche Interdisciplinari sul Lavoro.
    5. Impavido, Gregorio & Musalem, Alberto R. & Vittas, Dimitri, 2002. "Contractual savings in countries with a small financial sector," Policy Research Working Paper Series 2841, The World Bank.
    6. W Pfau, 2009. "The Role of International Diversification in Public Pension Systems: The Case of Pakistan," Economic Issues Journal Articles, Economic Issues, vol. 14(2), pages 81-106, September.
    7. Wade D. Pfau, 2007. "Asset Allocation for the Pakistan Pension System: A Role for International Diversification?," GRIPS Discussion Papers 07-06, National Graduate Institute for Policy Studies.
    8. de Menil, Georges, 2005. "Why should the portfolios of mandatory, private pension funds be captive? (The foreign investment question)," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 123-141, January.
    9. Srinivas, P.S. & Whitehouse, Edward & Yermo, Juan, 2000. "Regulating private pension funds’ structure, performance and investments: cross-country evidence," MPRA Paper 14753, University Library of Munich, Germany.
    10. Vittas, Dimitri, 1998. "The role of non-bank financial intermediaries (with particular reference to Egypt)," Policy Research Working Paper Series 1892, The World Bank.
    11. Vittas, Dimitri, 1998. "Regulatory controversies of private pension funds," Policy Research Working Paper Series 1893, The World Bank.
    12. Eduardo Siandra, 1998. "Sistemas de pensiones, sus reformas y los mercados de capitales," Documentos de Trabajo (working papers) 0299, Department of Economics - dECON.
    13. Vittas, Dimitri, 1998. "Institutional investors and securities markets : which comes first?," Policy Research Working Paper Series 2032, The World Bank.

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables


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